As an alternative form of risk transfer, captive insurance is gaining momentum in the District of Columbia. During the month of September, the District of Columbia Department of Insurance, Securities and Banking (DISB) was involved in several captive-related activities. Among them were the fifth annual conference by the Captive Insurance Council of the District of Columbia, a captive breakfast hosted by EWI Risk Services and DISB, as well as new captive legislation that was introduced in the Council of the District of Columbia.

A captive insurance company is generally defined as an insurance company owned and controlled by its insureds. The captive’s primary purpose is to insure the risks of its owners. It issues policies, buys reinsurance, pays claims and invests premiums similar to a traditional insurance company.

Since the passage of the Captive Insurance Company Act of 2000, DISB has licensed 64 captives in the District of Columbia. Over the past five and a half years, the District has evolved into a serious player in the captive market as a leading domicile.

The District’s Deputy Mayor for Planning and Economic Development Stanley Jackson said that because the District of Columbia has experienced unprecedented renaissance in all corners of the city, it will not only create more jobs, but also provide a better quality of life for all in the region and redefine the meaning of a world-class capital city.

“You are here because the city offers a prestigious image, convenient transportation and access to policymakers, but more important, you are here because we have an innovative and flexible captive insurance law that keeps pace with the market,” said Jackson before a lunch-time audience as he delivered the keynote address at the fifth annual conference of the Captive Insurance Council of the District of Columbia, Inc. (CIC-DC). Jackson’s remarks on the “Economic Development and Captives in the District of Columbia” was the highpoint during the conference, Managing Risk in the Alternative Market: The D.C. Captive Solution, from Sept. 25-26 at the Marriott Metro Center.

Opening the session on Sept. 26, DISB Commissioner Thomas E. Hampton gave a report on captives in the District.

“It is our belief that the District of Columbia can reach around 70 licensed captives and risk retention groups by the end of this year, and possibly 90 licensed by the end of 2007,” Hampton said optimistically about the growth of captives and RRGs. Hampton added that DISB is hopeful about the enactment of the Sarbanes-Oxley Act, where publicly traded companies have been implementing the Enterprise Risk Management approach as a method to appropriately identify and analyze a company’s risk exposures and provide new opportunities for captives.

On the first day of the conference, the District’s Ward 1 Councilmember Jim Graham discussed the securitization and protected cells legislation he introduced earlier in September. Associate Commissioner Dana Sheppard in the Risk Finance Bureau gave reasons why companies should consider having a captive in the District. Assistant Director of Compliance Lee Backus focused on the corporate governance for captives. About 25 industry experts addressed the conference on topics such as Offshore Captives Onshore, the effective use of reinsurance and using a captive.

CIC-DC president George Pantos said that the District’s friendly and fair regulatory environment and its sophisticated captive law have made it one of the nation’s fastest-growing captive domiciles.

“We’re doing some very innovative things here, and we hope the conference attendees will take those concepts back home with them,” Pantos said in a written statement.

More than 100 people attended the two-day conference that offered a high-caliber educational program designed to bring attendees up-to-date with the latest developments and issues making impact on the captive insurance industry. Further, it afforded attendees the opportunity for networking with other professionals to share ideas and information.

Associate Commissioner Dana Sheppard and Assistant Director of Compliance Lee Backus in the Risk Finance Bureau gave brief overviews of captive regulation in the District of Columbia at a breakfast meeting on Sept. 12. Hosted by EWI Risk Services, a Texas-based company that provides risk solutions to client partners, the meeting at the Fairmont Hotel focused mainly on the advantages of setting up a captive insurance company in the District of Columbia.

Sheppard’s presentation examined why the District is the best domicile for a captive, as well as capitalization of the captive and start-up costs. The reasons for choosing the District as a domicile are an innovative and flexible captive law, reasonable regulation, knowledgeable and professional captive staff, supportive District government leadership, a ready supply of qualified service providers and a prestigious location.

Captives allow businesses to gain greater control of the organization’s ability to identify, manage and finance insurable risks. The potential advantages include insurance costs, improved control of cash and investment income, direct access to reinsurers, and greater participation in risk management and claims activities.

“The cost of forming and operating a captive is expensive,” Sheppard said. “It’s best for a business that is already paying at least $500,000 in insurance premiums per year in the traditional insurance market.”

Backus discussed financial reporting and exams. The event explored the many economic and coverage advantages for captive owners and explained the formation process in detail.